DTN Early Word Livestock Comments

Cattle: Lower. Futures: Mixed. Live Equiv: $192.05 +$0.12*

Hogs: Steady. Futures: Lower. Lean Equiv: $111.49 -$2.37**

*Based on formula estimating live cattle equivalent of gross packer revenue. (The Live Cattle Equiv. Index has been updated to depict recent changes in live cattle weights and grading percentages.)

** based on formula estimating lean hog equivalent of gross packer revenue.

GENERAL COMMENTS:

Like it or not, rising grain prices are putting pressure on livestock futures despite any other supportive fundamentals. Live cattle were under pressure due to lower cash last week as feedlots wanted to move market ready cattle and packers pulled back on bids. Escalating feed prices pushed feedlots to move cattle. Lower boxed beef prices cause packers to bid lower for cattle. Substantially higher cost of production and the anticipation of yet higher input costs should eventually result in higher cash prices as supply tightens. However, rising consumer prices may limit the gains if demand for beef slows. One needs to remember that cash cattle prices do not have to rise to keep pace with expenses. It will depend on demand. Cash may struggle again this week as feed prices continue to rise and boxed beef still has not found a bottom. However, there was some sense of stability on Friday with choice down $0.02 while select increased $0.62.

Hog futures made a valiant attempt to regain some of the losses from the previous week but fell apart Friday finally succumbing to outside pressure. April through July contracts closed limit down, which may result in follow-through selling Monday. The National Direct Afternoon Hog report showed cash up $3.01, but that had no impact on the market. China's Ministry of Agriculture indicated a recurrence of African swine fever has been detected again (was it ever under control?). Cutout were down $2.42 on Friday. Packers are expected to be somewhat cautious to begin the week.

	BULL SIDE		BEAR SIDE
1)	Cattle futures are oversold and need a correction. Selling may have been overdone Friday moving futures to a discount to cash.	1)	Higher grain prices again overnight may keep pressure on cattle futures. Cost of production continues to rise leaving feedlots less willing to hold out.
2)	Futures rebounded substantially off the lows on Friday, setting the stage for a market correction.	2)	Lower cash is anticipated again this week as packers will not be willing to bid higher and feedlots want to move cattle.
3)	Hog futures left a chart gap on the open Friday, which will be filled at some point.	3)	Follow-through selling is expected in hogs due to futures closing limit down and a pool of traders still wanting to liquidate at the close Friday.
4)	Strong cash indicates hog supply is tightening. Packers are working harder to find market-ready supply.	4)	If demand slows due to rising inflation, supply may back up in the market even though hog numbers tighten.

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For our next livestock update, please visit our Midday Livestock comments between 11 a.m. and noon CST. Also, stay tuned to our Quick Takes throughout the day for periodic updates on the futures markets.

Robin Schmahl can be reached at rschmahl@agdairy.com

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